General Insurance Flashcards
What is the law of large numbers?
The more people with similar risk the more accurately an insurance company can predict loss
What are the different types of insurance companies
stock and mutual
What is the law of agency?
You do not represent the client you represent the insurer.
What are the elements of a legal contract?
- agreement
- consideration
- competent parties
- legal purpose
What is risk?
the chance of a loss occuring.
What is pure risk?
Situations that can only end in loss or no change. There is no option for financial gain. This is the only type of risk insurance companies will insure.
What is speculative risk?
invoves the oppurtunity for loss or gain. Example gambling.
What is exposure?
A unit of measure used to dermine rates for insurance coverage.
What are the elements of exposure?
- age
- medical history
- occupation
- sex
what is homoegenous?
Large groups having similar or same rask is called homogenous.
What is a hazard?
situaton or conditions that increase the probability of loss occurring.
What is physical hazards?
hazards occuring from strucutral or operational features of risk
what are moral hazards?
refers to applicant who has lied on an application in the past.
what are morale hazards?
increase the hazard because insured is reckless because they have insurance. “why should I care I have insurance.”
what is a peril?
a cause of loss
What is a loss?
reduction or disperence of value caused by a name peril.
what is risk avoidance?
eliminating exposure to a loss.
what is risk retention?
planned assumption of risk by an insured through use of deductible co payments or self insurance.
What is the purpose of risk retention?
- to reduce expenses and improve cash flow
- to increase control of claim reserving claim settlements
- fund for losses that cannot be controlled
what is risk sharing?
people or businessses with smae or similar exposure share the losses with a group.
risk reduction?
actons to lower impact of losses. Example smoke detectors or doctor checkups.
what is risk transfer?
Transfer of risk to someone else
What are the elements of insurable risk?
- due to chance
- definite and measurable
- statistically predictable
- not catastrophic
- randomly selected and large exposure
What is adverse selection?
insurance companies try to protect themselves from adverse selection which is people more prone to loss.
